US Labor Department Adopts New, Flexible Standard for Regulating Internships

US Labor Department Adopts New, Flexible Standard for Regulating Internships

Earlier this month the US Department of Labor announced that it was revising its test for determining whether interns count as employees entitled to protections under the Fair Labor Standards Act, citing recent federal court rulings that rejected the previous test:

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The department has issued a fact sheet explaining the standard it will enforce going forward, which is more flexible than the previous test and is based on the rubric the courts have used to judge who is the “primary beneficiary” of the internship and the “economic reality” on which it is based:

Courts have identified the following seven factors as part of the test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.

Previously, employment lawyer Eric Meyer explains at TLNT, the Labor Department applied a more rigid standard of six criteria, all of which had to be met in order for an intern not to count as an employee for FLSA purposes. The new standards will give employers more leeway in designing internships and reduce their risk of wage-and-hour litigation. Nevertheless, Meyer warns, they don’t give employers have carte blanche to abuse this newfound flexibility:

I see you twisting your handlebar mustache, Sally, thinking about how you’re going to save the company money by firing half of your employees and replacing them with “interns.” Just remember that even though the “primary beneficiary test” isn’t as rigid as the previous 6-factor test, it’s still a test and your mileage may vary.

Also, regulatory compliance isn’t the only reason for employers to think twice about unpaid internships, which are often inaccessible to students from low-income families who can’t afford to cover their living expenses, and which don’t necessarily help them advance their careers as promised. The connection between unpaid internships and a lack of social mobility has led the UK government to consider banning them, as reports have found that most internships in that country are not publicly advertised and most interns are engaged in menial tasks rather than skill-building experiences to further their careers.